Shortly after the US presidential elections, the US economy remains in good condition. Future development is characterized by high uncertainty and depends significantly on economic policy decisions under the new President Donald Trump, who will be inaugurated in January 2025. It is assumed that initially there will only be isolated tariff increases, and the announced tariff rates of 20 percent on all imports and 60 percent on imports from China will remain as threats.
Despite rapid interest rate hikes by the Federal Reserve to combat inflation, a recession has been avoided. The US economy expanded surprisingly strongly in the third quarter of 2024 by 0.7 percent compared to the previous quarter (annualized 2.8 percent). GDP had already expanded at the same rate in the second quarter. Growth over the summer months continued to be supported by private consumption, which increased even more strongly at 0.9 percent. Business investments also rose by 0.4 percent, though growth has somewhat slowed here. After investments had grown exceptionally strongly against the backdrop of massive government support programs for semiconductor production and renewable energy, they appear to be gradually stabilizing at a high level. The recovery in residential construction investments that began in 2023 has not continued recently. The still-high interest rates likely dampened momentum. Foreign trade expanded strongly. However, exports grew somewhat less markedly than imports, and the trade deficit increased slightly.
In the current fourth quarter of 2024, the US economy will continue to grow. The growth rate will likely decrease somewhat. Private consumption should still support the economy. Retail sales have continued to increase moderately. The labor market situation remains remarkably robust but has gradually deteriorated. The trend shows fewer new jobs being created, and the unemployment rate has slowly increased from 3.5 percent to 4.1 percent in October.
Future development is characterized by high uncertainty and depends significantly on economic policy decisions under the new President Donald Trump, who will be inaugurated in January 2025. It is assumed that initially there will only be isolated tariff increases, and the announced tariff rates of 20 percent on all imports and 60 percent on imports from China will remain as threats. Corporate taxes are expected to be reduced from 21 to 15 percent during 2025 as announced, and regulations will be dismantled, possibly at the expense of environmental protection. Additionally, hundreds of thousands or even several million people may be deported in 2025 if their immigration to the US is classified as illegal. Overall, these expected policy measures should provide a slightly positive short-term impulse to economic dynamics. Simultaneously, federal budget deficits will rise significantly, and all measures assumed here are likely to increase inflationary pressure. Compared to the previous year, inflation was still at 2.4 percent in September. Core inflation, excluding energy and food prices, increased by 3.3 percent compared to September 2023. Against this background, the Federal Reserve has cut its key interest rates by a total of 75 basis points in September and October. Another rate cut is expected in December. Afterward, no further rate cuts are expected due to the inflationary policy measures.
Going forward, the US economy will continue to grow solidly. At least in the first half of 2025, private consumption will provide less momentum given a somewhat less favorable labor market situation and lower wage increases. Business investments were particularly stimulated last year by government support programs for renewable energy and semiconductor production and are now expected to increase only slightly. As inflationary pressure remains elevated, interest rates will likely fall only slightly. Financing conditions and business investment willingness will only be moderately stimulated. Residential construction investments will only gradually increase again and likely provide a noticeable boost to the US economy only from late 2025.
Overall, the US economy is expected to grow by 2.8 percent in the current year. Further expansion is expected in 2025 and 2026. Growth rates should initially be somewhat lower at 2.4 percent next year and 2.6 percent in 2026. Inflation will not fall to two percent until 2026.
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